US Radio versus Music Services: A comparison of the value of spins versus streams

UPDATE: An updated version of this post, employing inputs and estimates for 2014, can be found at Rockonomic.com.

Following on a estimate of the music industry collections from UK Radio stations, I have done my best to estimate effective per spin per listener rates collected from US Radio stations. [NOTE: these estimates date back to 2011]

Importantly, the goal here was to estimate the effective value of each radio spin *per listener* so that rate can be compared to not only that rate being observed for the effective value of a stream on music services (e.g., Rdio, Rhapsody, or Spotify) per listener, but also those rates applicable to webcasting streams.

First, a quick clarification: Most chatter about radio royalties hinges on the value of a spin, and yet the chatter about music service royalties hinges on the value of a stream. However, this comparison between spins and streams is not usually/always equivalent. Why?

The usual “spin” value often refers to a radio play on a station or syndicated show that was experienced by a large audience (sometimes millions of people).

A stream payment usually refers to a play/stream by a music service experienced by a single listener (or at least a single subscriber account).

Therefore, I am trying to compare spins and streams on equal terms by converting this spin-to-millions value from Radio to a value per listener, as is the case for music services. Please scroll to the end of this post for an explanation of the per spin/stream per listener comparison in the context of licenses based upon percentages of revenue or blanket fees and advances.

Now for the numbers…

The Short Story:

Just the calculated rates and none of the overly numerical explanations…

Important: In the US, radio stations pay royalties for only those performance rights carried by the Musical Work (the lyrics/composition), and do not pay for performing rights to the stakeholders of the sound recording. As a result, effective rates below are estimates of amounts paid only to publishers, songwriters, and lyricists—the various stakeholders in a Musical Work.

Taking a stand:

$0.000186 to $0.000372 <- per spin per listener
or
$186.00 to $372.00      <- per 1,000,000 listeners in the radio audience
Not taking a stand:

$0.0002977923 <- Estimated effective rate per spin per listener*
$0.0000992641 to $0.0005955847 <-Range**
at 15 songs per hour

$0.0003722404 <- Estimated effective rate per spin per listener*
$0.0001240801 to $0.0007444808 <-Range**
at 12 songs per hour

$0.0004963206 <- Estimated effective rate per spin per listener*
$0.0001654402 to $0.0009926411 <-Range**
at 9 songs per hour

$0.0013 <- Effective rate per stream per listener on music services
$0.000300 to $0.0015 <- Range
estimated through songwriter reports, musical work only

The Long Story (with the Inputs):

The effective rates paid by radio and music services in the US are less directly comparable to those rates paid in the UK. Unlike in the UK, radio broadcasters in the USA pay royalties to only one set of music rightsholders: those with an interest in the musical work [the publisher(s), lyricist(s), and songwriter(s)]. Music services in both countries, on the other hand, are paying both sets of rightsholders.

I will begin with the total Dollars collected from Radio by the three performance rights collectives in the US: ASCAP, BMI, and SESAC. While ASCAP openly discloses its domestic collections from Radio, BMI only discloses these values indirectly (in its annual report)—reporting the proportion of total collections that are not international, and that proportion of domestic collections that are from Radio. I had to estimate SESAC’s collections. Being a private company, SESAC does not publicly disclose its collections.

I will then break down this total value of collected Dollars on a daily, hourly, and finally per spin basis (for the set of music tracks hitting the ears of listeners at any moment in time in the US across all music radio stations).

Since not all radio stations are playing music (predominantly or exclusively), I have chosen to follow the royalty dollars to the radio-listening audience, through the tracks plausibly heard by only this audience.

Finally, I arrive at an effective range of the per spin per listener value through a set of estimates of the average size of only the music radio listening audience during the day in the US.

The overly numerical banter:

(A) $230,881,000 <- Dollars collected from Radio by ASCAP (pdf)

(B) $198,303,000 <- Dollars collected from Radio by BMI (imputed)

(C) $42,918,400   <- Dollars collected from Radio by SESAC (estimated)

(A)+(B)+(C)          <- Dollars collected from Radio by the Collectives
equals
$472,102,400       <- Estimate of Total Dollars collected from Radio in the US

/ 365 <- Number of days in the year, resulting in per day payments
/ 24   <- Number of hours in the day, resulting in per hour payments
equals
$53,892.97 <- Dollars collected per hour from US Music Radio

So, if music royalties were measured like a taxi meter, the meter would rack up royalties at a rate $53,892.97 per hour.

/ 12 <- Number of songs played per hour, resulting in per song payments
equals
$4,491.08 <- Dollars collected per simultaneous spins across entire US Music Radio

The meaning of this $4491.08 is simple.  PROs collect royalties from the performance of about X songs per hour (where X might be 12, or 15, or 9) across all music radio stations.  $4,491 is simply the Collections per Hour divided by X, if X were 12 songs per hour.

Note: That figure—$4,491.08—is not the value of a spin on a single station or show, like Jack FM. It is an estimate of the average total value of all spins across all music stations in the US given some number of songs played per hour.  A source like Jack FM would be one of the shows/stations playing music at any time. If, however, I reckoned that any station/network were 10% of the listening audience at some point in time, the value of that spin on that single station might be around $449.11.

Some might disagree with the rate of 12 tracks per hour (or about 36 minutes of music). And so I also ran estimates asserting 15 tracks per hour (about 45 minutes of music) and 9 tracks per hour (24 minutes of music).

We need to divide $4,491.08, however, by the average size of the US radio audience throughout the day that is listening to music radio to get an estimate of the value of each spin per listener. Essentially, if I could flip a switch and know how many people were listening to music on the radio at any moment, how many people (on average) would I find to be listening?

Unfortunately, such a switch does not exist. But a variation exists in the form of Arbitron’s estimates of the radio audience.

In the US, Arbitron estimated that during the most recent quarter approximately 241,300,000 people over the age of 12 listened to the radio at some time. This estimate is not the same as an estimate of the average size of the listening audience, however. In particular, it is not that portion of the audience that is listening to music (on the) radio at moments in time.

Arbitron estimates Hour-by-Hour listening as a proportion of its quarterly radio audience. In their 2010 Radio Today report (page 89), these ratings throughout the day range from a high of approximately 17% of quarterly listeners to a low of around 1% of quarterly listeners. The average across the 24-hour period appears to be in vicinity of 9.5%.

241,300,000 <- Arbitron estimate of quarterly radio listening audience, Q3 2011

$4,491.08      <- Dollars collected per spin if across entire US Radio audience

/ 6,032,500   <- approximately 2.5% of the quarterly radio audience
or
/ 12,065,000 <- approximately 5% of the quarterly radio audience
or
/ 24,130,000 <- approximately 10% of the quarterly radio audience
or
/ 36,195,000 <- approximately 15% of the quarterly radio audience

—————————-

Dollars collected per spin per listener for Radio in the US for various estimates of the average listening audience:

At 15 songs per hour
$0.0005955847 <- if the average listening audience is 6,032,500 people
$0.0002977923 <- if the average listening audience is 12,065,000 people
$0.0001488962 <- if the average listening audience is 24,130,000 people
$0.0000992641 <- if the average listening audience is 36,195,000 people

At 12 songs per hour
$0.0007444808 <- if the average listening audience is 6,032,500 people
$0.0003722404 <- if the average listening audience is 12,065,000 people
$0.0001861202 <- if the average listening audience is 24,130,000 people
$0.0001240801 <- if the average listening audience is 36,195,000 people

At 9 songs per hour
$0.0009926411 <- if the average listening audience is 6,032,500 people
$0.0004963206 <- if the average listening audience is 12,065,000 people
$0.0002481603 <- if the average listening audience is 24,130,000 people
$0.0001654402 <- if the average listening audience is 36,195,000 people

Finally, and importantly, I realize that Radio stations in the US do not pay royalties on a per spin (and per listener) basis. Instead, these Radio royalties are calculated by such means as a percentage of revenue, or as a result of a negotiation over a blanket fee.

I also realize that music services—such as MOG, Rdio, Rhapsody, and Spotify—are not—by default—paying royalties on a per stream (per listener) basis. Instead, these royalties may be calculated through a number of means, none of which can be openly discussed due to the joys of non-disclosure clauses.

However, the resulting pool of money from Radio can be and has been counted. And various sources have reported online their payments from music services. As a result, nerds like me can try to estimate some effective rate given the size of the pools, the rough number of tracks played, and the number of listeners.

*
The estimates above are a function of considering the average music radio listening audience (across moments in the day) to be 5% of the estimated quarterly radio audience as reported by Arbitron. For comparison, Arbitron estimates the average size of US Radio (all formats) audience to be approximately 9.5% of the quarterly audience. I worked below this number given (a) not all stations are music stations and (b) Arbitron may be overestimating the size of the Radio audience.

**
The ranges above are a function of considering the average music radio listening audience (across moments in the day) to be 2.5%, 5%, 10%, and 15% of the estimated quarterly radio audience as reported by Arbitron. For clarity, the smallest assumed listening audience will lead to the highest estimated rate per stream per listener in the ranges.

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UK Radio versus Spotify: A comparison of the value of spins versus streams.

In the context of a great deal of debate over the value of streams on new music services, Spotify in particular, I have been working on some back-of-the-napkin (or serviette) estimates of the value of not only listens per listener to purchased tracks, but also spins per listener on major radio broadcasters. This week, I focused on radio broadcasters in the UK, such as the BBC.

Below I try to calculate the effective value of a radio spin *per listener* so that rate can be compared to the rate being observed for the effective value of a music service stream per listener.

First, a quick clarification: Most chatter about radio royalties hinges on the value of a spin, and yet the chatter about music service royalties hinges on the value of a stream. However, this comparison between spins and streams is not usually/always equivalent. Why?

The “spin” value often refers to a radio play experienced by a large audience (sometimes millions of people).

A stream payment usually refers to a play/stream by a music service experienced by a single listener (or at least a single subscriber account).

Therefore, I am trying to convert this spin-to-millions value from Radio to a value per listener, as is the case for music services. Please scroll to the end of this post for an explanation of the per spin/stream per listener comparison in the context of licenses based upon percentages of revenue or blanket fees and advances.

Warning: I end up with a rather small number as the estimate of the value of a UK Radio spin per listener. Fortunately, and importantly, the radio audience in the UK is quite large overall, leading to a total pool of royalty monies that is large enough for most labels, artists, songwriters, and publishers to take notice.

Were the pool of money flowing from music services in the UK, such as Spotify, as large as that flowing from Radio, we might not be having these sorts of discussions. Maybe someday both of these pools will be large. The bigger question than these present rates, therefore, is whether we should and how we might get to that version of someday.

The Short Story:

just the calculated rates and none of the overly numerical banter…

£0.0002992992 <- Estimated effective rate per spin per listener
£0.0000998 to £0.0005985 £0.0002993 <-Range
at 15 songs per hour

£0.0003741240 <- Estimated effective rate per spin per listener
£0.0001247 to £0.0007482 £0.0003741 <-Range
at 12 songs per hour

£0.0004988320 <- Estimated effective rate per spin per listener
£0.0001662 to £0.0009976 <-Range
at 9 songs per hour

The estimates above are a function of considering the average music radio listening audience (across moments in the day) to be 5% of the estimated quarterly radio audience as reported by RAJAR. The ranges above are a function of considering the average music radio listening audience (across moments in the day) to be 2.5%, 5%, 10%, and 15% of the estimated quarterly radio audience as reported by RAJAR. For clarity, the smallest assumed listening audience will lead to the highest estimated rate per stream per listener in the ranges.

£0.0005000 to £0.005000 <- Music Services effective rate per stream per listener (estimated)

The Long Story (with the Inputs):

The effective rates paid by radio and music services in the UK are more directly comparable as compared—no pun intended— to those rates paid in the US. Unlike in the US, radio broadcasters in the UK pay royalties for both sets of music rightsholders: (a) those with an interest in the sound recording [aka, the neighbouring rights; the owner(s) of the recording, as well as the featured and performing artist(s)] and (b) those with an interest in the musical work [the publisher(s), lyricist(s), and songwriter(s)]. Music services are paying both sets of rightsholders as well.

I will begin with the total Pounds collected from Radio by the two core performance/performing rights collectives in the UK: PRS for Music and PPL.

I will then break down this total value of collected Pounds per day, per hour, and finally per spin (for the set of music tracks hitting the ears of listeners at any moment in time in the UK across all radio stations).

Since not all radio stations are playing music (predominantly or exclusively), I have chosen to follow the royalty dollars to the radio-listening audience, through the tracks plausibly heard by only this audience.

Finally, I arrive at an effective range of the per spin per listener value through a set of estimates of the average size of only the music radio listening audience in the UK during the day.

The overly numerical banter:

(A) £49,500,000 <- Pounds (2010) collected from Radio by PRS (pdf)

£61,700,000 <- Pounds (2010) collected from Broadcast/Online by PPL
x 70% <- Rough approximation of % of PPL B/O from Radio**
equals
(B) £43,190,000 <- Estimate of Pounds collected for Master Performance

(A) + (B) <- Pounds collected from Radio by PPL and PRS
equals
£92,690,000 <- Estimate of Total Pounds collected from Radio in the UK

/ 365 <- Number of days in the year, resulting in per day payments
/ 24 <- Number of hours in the day, resulting in per hour payments
equals
£10,581.05 <- Pounds collected per hour from UK Music Radio

So, if music royalties were measured like a taxi meter, the meter would rack up royalties at a rate £10,581.05 per hour.

/ 15 <- Number of songs played per hour, resulting in per song payments
equals
£705.40 <- Pounds collected per spin across entire UK Music Radio

Note: That figure—£705.40—is not the value of a spin on a single station, like BBC Radio 1. It is an estimate of the average value of all spins across all music stations in the UK at a moment in time, one station of which would be the BBC’s Radio 1. If, however, I reckoned that BBC Radio 1 were 10% of the listening audience at some point in time, the value of that spin on that single station might be around £70.54.

Some might disagree with the rate of 15 tracks per hour (or about 45 minutes of music). And so I also ran estimates asserting 12 tracks per hour (about 36 minutes of music) and 9 tracks per hour (24 minutes of music).

We need to divide £705.40, however, by the average size of the UK radio audience throughout the day that is listening to music radio to get an estimate of the value of each spin per listener. Essentially, if I could flip a switch and know how many people were listening to music on the radio at any moment, how many people (on average) would I find to be listening?

Unfortunately, such a switch does not exist. And so, now is that uncomfortable time when assumptions, guesstimates, and hopefully well-reasoned estimates are made.

In the UK, RAJAR estimated that during the most recent quarter approximately 47,137,000 people over the age of 15 listened to the radio at some time. This estimate is not the same as an estimate of the average size of the listening audience, however. In particular, it is not that portion of the audience that is listening to music (on the) radio at moments in time.

Below, I will calculate an estimate of the value per spin per listener at three guesstimates of the average size of the music radio listening audience during the day in the UK, given the peak/trough variation in this audience. Please feel free to share your thoughts/insights as to what other inputs I could/should use here.

Added: In the US, Arbitron estimates Hour-by-Hour listening as proportion of its quarterly radio audience. In their 2010 Radio Today report (page 89), these ratings throughout the day range from a high of approximately 17% of quarterly listeners to a low of around 1% of quarterly listeners. The average across the 24-hour period appears to be in the 8-10% range.

47,137,000 <- RAJAR estimate of quarterly radio listening audience, Q3 2011

£705.40 <- Pounds collected per spin if across entire UK Radio audience
/ 2,356,850 <- approximately 5% of the quarterly radio audience
/ 4,713,700 <- approximately 10% of the quarterly radio audience
/ 7,070,550 <- approximately 15% of the quarterly radio audience

—————————-

Pounds paid per spin per listener for Radio in the UK for various estimates of the average listening audience:

At 15 songs per hour
£0.0002993 <- if the average listening audience is 2,356,850 people
£0.0001496 <- if the average listening audience is 4,713,700 people
£0.0000998 <- if the average listening audience is 7,070,550 people

At 12 songs per hour
£0.0003741 <- if the average listening audience is 2,356,850 people
£0.0001870 <- if the average listening audience is 4,713,700 people
£0.0001247 <- if the average listening audience is 7,070,550 people

At 9 songs per hour
£0.0004988 <- if the average listening audience is 2,356,850 people
£0.0002494 <- if the average listening audience is 4,713,700 people
£0.0001662 <- if the average listening audience is 7,070,550 people

Finally, and importantly, I realize (realise) that Radio stations in the UK do not pay royalties on a per spin (and per listener) basis. Instead, these Radio royalties are calculated by such means as a percentage of revenue, or as a result of a negotiation over a blanket fee.

I also realize (realise) that music services, such as Spotify, are not—by default—paying royalties on a per stream (per listener) basis. Instead, these royalties may be calculated through a number of means, none of which can be openly discussed due to the joys of non-disclosure clauses.

However, the resulting pool of money from Radio can be and has been counted. And various sources have reported online their payments from music services such as Spotify. As a result, nerds like me can try to estimate some effective rate given the size of the pools, the rough number of tracks played, and the number of listeners.

** As far as I could tell, PPL does not breakdown its Broadcast and Online revenue further in its Annual Report. There was not direct comparable for this estimate of the proportion of PPL collections that are derived from UK Radio royalties. I erred on the side of too large a proportion rather than too small. Any guidance on this figure would be appreciated

iTunes downloads versus Spotify streams, a comparison continued

A few weeks ago I posted a back-of-the-napkin comparison of the effective rate paid per listen for digital downloads (like iTunes sales) versus that paid for music service streams (like Spotify, MOG, Rdio, Deezer listens).  This post got a bit of attention from sources like MusicAlly, The Music Void, slammed by the Musical Disconnect, and the debate still continues.

I figured I would respond to some of the comments and criticisms, however.  Frankly, I appreciate both.

Your estimate of Spotify’s pay rate is off, no one is getting $0.0033 per stream:

I employed only the effective rates that had been posted publicly by a variety of sources. I was trying to work with an effective rate per stream (recognizing that deals may not be per stream rates, necessarily).

Those sources:

PaidContent reported that STHoldings claimed $2500 from 750,000 plays, which works out to about $0.00373 per stream. ST Holdings removed the post with this claims (I believe) as well as their content from Spotify for the reasons of the payout levels.

Gizmodo published a post from Uniform Motion who reported receiving $0.0029 Euros per stream ($0.00386 at present exchange rate or $0.0041 by Gozmodo’s calculations).

Billboard.biz reported that Mode records calculated receiving $36.98 for 11,335 stream = $0.0033 per stream.

Digital Audio Insider reports average payout of $0.002865 per stream.

DigiMuziek offered up screenshots of their payments, which were increasing from EU0.0019 to EU0.0022 from September to October 2011. The last rate works to about $0.0029 per stream.

Some Artists/Labels in the US are reporting lower amounts.  These per stream rates seem to be clocking in closer to the $0.0013 per stream that Sam from Projeckt Records is reporting.  I am looking into these lower rates to try to understand them and the differences.

Let’s be clear, however.  Different people appear to be receiving different effective rates.  That difference matters.

Spotify does not really pay a set per stream rate:

OK.  But I was trying to compare an effective rate per listen for both downloads and streams.  To do this I had to estimate something akin to a per stream rate.  Your contract may not say “per stream rate.” There still would exist an effective rate per stream (dollars received divided by number of streams).

Spotify (unlike some other music services) would like to operate by paying artists a percentage of revenue rather than a set rate per stream.  I tried to do the same thing with a music service more than a decade ago.  This sort of structure “makes sense” from the point of view of the service.  It may not make the same sort of sense for rightsholders.

When the rubber hit(s) the road, I think its worth debating whether certain rightsholders are seeing guarantees or minimas that present services such as Spotify with essentially fixed-rates in some cases, fixed portions of subscriber fees in other cases, and just raw % of revenue in others.

250 listens to a track over the lifetime is too high:

I may have overestimated that.  But to be clear, I was comparing purchased track downloads to music service streams.

The feedback I got was that the average is quite different if you look at single track downloads you purchased (higher range average listens), albums you purchased that have tracks you never wanted in the first place (middle range average listens), and giant music collections the bulk of which you simply obtained and maybe did not acquire (low range average listens).

Comparing CD sales to Music Services streams:

Some people responded by comparing CD sales to Spotify streams.  CDs have ten or more tracks on them.  So a single CD sale is actually 10 (or more) track sales.

CD/Track sales equate to millions of Music Service streams:

You will unquestionably find that CD sales in the near term are equivalent in dollar terms to millions (if not tens of millions) of streams on a music service.

I wasn’t denying this difference.  The different was the point of the analysis and estimates.

I was trying to understand whether these amounts were that different if you considered them in equivalent terms—payments per listen.

To be continued…